Started tracking expenses and income, setup a budget now knows where the money is going, the next step is a debt reduction plan. This is the next step towards getting credit card and all debt under control.
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Hello, I'm your host, Mr. Chuck, I retired accountant turn truck driver, I reduce my debt in a relatively short period of time, that reduction to achieve financial freedom takes commitment, confidence determination debt reduction plan. So far, we start tracking expenses, and income, which is important. Set up a budget. So we know where the money is coming from, and we know where the money is going to. The next step is a debt reduction plan. This is the next step towards getting that credit card and all your other debt under control. And just a note, this podcast is intended for those who are struggling to get out of credit card debt. If you they're not having that problem. And you're thinking about trying to get all your other debt paid off, such as auto loans, personal loans, payday loans, line of credit on your home, or even your first mortgage. This, it could be helpful. But if you're have debt, that is had low rate of interest that you're paying out, it may be better for you not to pay it off. And this take the time and pay it off over time. That's why you borrowed the money. With the higher rates of inflation coming up, some say you're going to pay it back with cheaper money. Personally, I don't fully understand that statement. Because most of the time, when we're living through higher rates of inflation, we're not getting pay raises. So we're not really our income is not adjusted and going up with the rate of inflation. So deal really paying that back with cheaper money. At could be debatable, but that's not what I'm here to talk about. So we started tracking all of our spending, we track all of our income coming in, we have an app war, we've been posting all our payments, income, all the activity in our checking account, all the activities in our credit card accounts. All the activity in our savings account. So we know how much money we have, how much money is going out, we have a fair idea what's coming up next, we can look back and see what's coming up. This is where projecting forward is important. If you're aware of how much you have today, and how much you need to pay for in the next pay period, going forward, you're gonna be much better off because you can plan for it. You know how much you're going to need and how much you not gonna have once you make those payments. And that's an important step and getting your credit card on or control your debt. Because a debt reduction plan is what are you going to do to pay off the debt, but the step one, so you got to identify all the debt you have on let's start with the basics. You have a mortgage, if you're buying a home, you have auto payments, if you're buying a new auto or newer auto, you may have a personal loan, he may have student loans, he may have payday loans and you have credit card debt they need to understand and know all your debt 100% And how much of that that payment is taken out of your monthly budget. How much are your payments, reducing your income that you're getting from working or however you get your income. The more debt you have, the less money you're going to have, the less money you have less you're going to save for any purpose. Whether you're trying to save for your children's education, or you're trying to save for your own retirement where you're trying to save up money for a down payment on a home or an automobile or whatever it is you're wanting to buy in the future. You're just gonna have less of it. So on the debt reduction plan, you need to identify all your debt you need to categorize them, or put it in order by which debt has the highest rate of interest, most likely, those payday loans are gonna be the most expensive, maybe your credit cards are gonna be up there, after that maybe you have a couple personal loans are gonna be after the credit cards, and then maybe automobile loan, if you have a five year automobile one with 0% interest, you got one them sweetheart deals, you don't want to pay that one off. Because it's not costing you anything, just make those monthly payments and don't pay any extra on it make take advantage of a loan that has zero interest. That's this unknown. So we get them all in order. Week, we put them in order by the highest interest rate first. And we need to what are we gonna do? How are we gonna pay these off, it may be overwhelming. He, he might have been paying extra on some of the loans, maybe you're putting an extra $50, maybe an extra $100 a month, or pay, trying to get them under control, quit doing it. If you don't have an emergency fund, if you don't have any type of savings, he got to start making the minimum payment on all your debt, he got to stop creating a new debt, quit borrowing money, quit using your credit cards to buy things, quit using your credit cards to pay for things that maybe you've already bought, you're using credit to pay credit, you're definitely in trouble. If that sounds like what you're doing, you're in trouble. So he need to quit creating new debt, quit borrowing money, then the next step would be to pay the minimum amount on all your debt no matter what it is pay the minimum credit card amount, pay the minimum on your auto loan, pay the minimum on your payday loans. Hopefully you can pay them off every week, and then quit doing them. Pay the minimum on every loan you have. Why? Because that money that you've been paying extra Ron, you're just wasting, you need to get yourself an emergency fund. If you don't have a savings account, go to your bank. And at Tallan, I want to save up the same sense start a savings account in May, he may have to have a $50 minimum deposit to open it up. So go there, get one open, put your $50 in there. If you can do it online, that's great. Do it online. And then that's your emergency fund. And your goal is to start having a $500 emergency fund, what are you going to use that for? As something comes up that you have to pay for whether your car breaks down, or one of your children has an accident and breaks an arm and you have to go to the emergency room for an unexpected bill, then you can use that you can use that $500 to help pay for that. And then you debt would result in using less credit. If it pays off 100% of that emergency Great. Then build a backup again, that your goal is to have $500 in there. And then over time cape, increase in your emergency fund, get it up to $750 then get it up to $1,000 and then $1,250 and 1$,5000, $1,750.. I think you're getting the idea. Keep building it up. Once you hit your minimum what you want in your emergency fund say it's $500 He keep on putting money into your savings account and you keep on making the minimum payments on all your debt. And you keep putting money in that savings account. And you wait until you have $1,500, $2,000, $2,500 Extra and your savings account and then you take that extra over what your emergency fund would be. So say you got $2,500 You want a $500 emergency fund and you have $2,000 Once you have over $2,000 extra in there and then take the $2,000 and apply it to one of your debt. If you have a credit card or one of the debt that's a lot less than that. Take the smallest one, pay it off CLI the imbalance to the next one, I recommend, the very first time you Diskin started is to pay off the lowest balance credit card first. And once you achieve that, then you're gonna shift to paying off the highest interest rate first. Why? Because it's going to take a little bit longer to pay off those high interest rate cards, because he might have a bigger balance. But over time, it's gonna save you money, because you got to get rid of that high interest rate debt. And you're going to start paying less and interest, the less amount of interest you pay, the faster you're going to be paying this off. Once you get one or two of the credit cards paid off, then increase your emergency fund, get it up to a least $1,000, I recommend $1,500 or $2,000. Now here's the best part while you're saving up your money, and what once you get your emergency fund up to where you want it to say $1,000, because we're increasing it over time, you know, three months later, four months later, we want to have a minimum balance in that savings account of $1,000, in case we have an emergency, and then you keep building it up, let's say you have $4,000 in there, well, the time that your emergency fund is greater than $1,000. And until such time happens, that you take the excess out and pay a credit card, you just have that much bigger emergency fund. So let's say you have $2,500 in there, and you have an emergency, you blow a tire on your car, and you need four new tires. Well, maybe that $1,000 went and paid for it, that $1,250 will while you have that extra money in there, use it for that emergency, because your number one goal is to quit creating new debt. I cannot stress that enough. And the more money you have in that savings count, the bigger the emergency you're gonna be able to handle. Yes, it may delay the time it takes you to pay off the debt, but at least you're not getting new debt, you're not Compounding the problem by increasing what you owe people. And it's a slow process to get started, those dominoes are gonna fall fairly slow. And as you get going, it's gonna pick up a little bit of speed. Why, because you pay off the first credit card, that's one less monthly payment you have to make, even if it was only $50 a month, that's $60 More, you're gonna have to put into the emergency fund, and you get the next one paid off. And again, maybe it was $75 a month. Now that's $125 more than what you had going into your savings account. Then when you got started. II see how it's building than the last memoriam you get paid down them faster, you can put money in this savings account, the faster is gonna build up, the faster you're gonna be paying down the next credit card, or the next loan you're trying to get rid of. And it just keeps speeding up over time. It goes faster and faster and faster. And before you know it, it'd be working on your first mortgage. Maybe you owe have a 30 year mortgage that you've been paying on for six or seven years and you think I'll never get this paid off. You have no credit card debt now have no personal loans. You got your maybe even have your student loans paid off. He got all your debt under control, your credit rating is improving, and you're paying everything on time. And everything's going well. And he starts saying well, I can afford to apply money, extra money to my mortgage, and you have your emergency fund build up to $3,000. And every two months, three months, you're putting another $2,000 Extra against that mortgage. It's not going to reduce your payments until you refinance. But if you have a low mortgage under 4% Then you need to really think about one do I really want to pay it off, do I have another use, I can use as money for this, should I be setting that money aside, for my children's college education should be setting more money aside for my own retirement? Do you have a 401k plan through work, if you do, do not stop doing it in order to pay off your debt, keep making contributions to an IRA, or your retirement plan through work the whole time you're trying to pay off debt, because that's a lost opportunity. If you have your employer making some type of match, then if you don't do it, they're not going to match it, that's lost opportunity. And the longer you have money invested in the market, the faster the more money you're gonna have, when you retire. It's simple. Compounding a few put in $2,000 a year from the time you're age 20, to the time you start working to the time you retire, you're gonna have a whole lot more money than it would be if you put 10,000 a year for the last five years of your working life. So if you wait till you're 55, and you put $10,000 a year in, you're gonna have a lot less money than you would if you started when you was 20, 22 to 25. And put a few 1000 in a year, and let it grow on its own. Don't not stop making contributions to your retirement account. Okay, you may lower it down, maybe you as maximizing it, maybe you over maximize, and that's what got you in trouble. Okay, reduce it down, but don't stop it, reduce it down to the least the amount of money that your employer is God to match the maximum of their match. And don't go any lower than that. If you're not doing any retirement accounts start, you got to get started, you got to start up. And and once you qualify to participate when your employer's retirement account, you got to get that started the day that you are eligible to do so. If not, you're just leaving money on the table. That's money that we're willing to give you. And it will help you and retirement. And the sooner the longer you do it, the more you're gonna have. Now, let's get back to your debt reduction plan. I'm just gonna outline and again, so it's clear. What we want to do is identify all the debt you owe, put it in order by the highest interest rate first, if it's credit card debt, if you have one or two credit cards verse, a fairly small balance, put those on top, and this is the order you're going to be applying your payments. And once you get those one or two small balanced ones paid off, then that should be in order by the highest rate of interest and work your way down from there. You're probably wondering, why is he saying the pay off the ones with the lowest balance first. Because that make feel like you accomplished something. And you don't cancel those credit cards, but keep them but don't use them. Because down the road, that credit card company may send you an offer. And the offer would be transfer a balance from another credit card to us. As we'll charge you 3% And we'll give you 18 months zero interest, then you can take one of those high credit cards that has a 20% 21% rate of interest. Transfer the amount of money you can afford to pay. So it comes to zero and 18 months, paid to 3%. And with a month to two months, you'll have your money back. And the savings of interest, you didn't have to pay on that high rate. And you can just pay it down and pay it off. And guess what they're gonna do, they're gonna send you that offer. Again, it may be 12 months, it could be 18 months. And if you're really lucky, it might be two years and you can transfer some high or rate interest to that card and pay it off. So that yes, that's using debt to pay off debt, but it's not kind of cost you a lot of money. It's the cheaper way to go. And that may be better than doing a consolidation loan. I'm not preaching to do any loans right now. We're focusing on getting your debt under control, and you got to come up with a plan. So your plan is quit creating new debt, make the minimum payment on your debt, put your debt in the order of the highest rate of interest first. And then put, when you make the minimum payment, put the extra money, that you are not paying towards that debt, and a an emergency fund, build up your emergency fund. And once you have excess money in there, money is not really access as money over and above your emergency fund, take that money out and apply it to one of those debt. And do that over and over and over. I'll be back in one moment was my final thought, if this podcast has been helpful for you, please rate and review this podcast on your app. And if you know anybody that may benefit from this, then please refer them to my podcast. And I appreciate the time you take to do so everything you do is important. From the beginning, he start tracking all your income and your expenses and a application. What I mean by that is track everything that runs through your checking account, your savings account, through all your credit cards, know where your money is coming from in the awards going to and then create a report by category. So you have some totals for the month, and set up a separate budget in a spreadsheet. And I do have a template for a personal budget by month, so that you can track it for every month of the year. And then you can go back and look and see where you improve. Where you save some money, where you may be changed, because your life's gonna change over time. Maybe you're at the point where you spend more money on entertainment, and then you get married, now you're gonna spend more money on housing and transportation. So it's gonna change, it's never ending. So you need to know about what's gonna cost you the budget and amount of what you're going to be spending, and then put in the actual dollar next to it. So you see how you're doing. Then once you get that done, you move on to your debt reduction plan. Quit creating new debt. Put everything in order by highest rate of interest down that money into your emergency fund, built up an emergency fund, take the excess money that you have above and over your emergency fund dollar amount that you targeted and apply it to do that over and over and creating, make the payment, have a emergency fund. Build up your emergency fund in the past which you set it up for set for a year. Take the excess money and apply it to one of your debts. Preferably the highest rate of interest first. And keep making contributions to your retirement plan. Because that's the most important thing we can do. Above getting out of debt. And this is a slow process to get started. You may not think you can do it this day when you don't get along. Because you've already identified that you have too much debt. How are you going to get rid of? Well, the best way is to pay it off. And how are you going to do that while you gotta quit creating new debt, make the minimum payment, build up an emergency fund, apply the access emergency fund to that debt over and over. It's a never ending process. And once you get started, it's gonna be slow beginning but it's gonna speed up over time. And when you get done, and maybe three years, four years, five years later, you're gonna be glad you did it. And you got to be glad you stuck with it. Because now you're going to have a whole lot more money than you thought you'd ever have. And you're making the same amount of income every year.